Economy falters but surprises on the upside in the 2020 fourth quarter
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JOHANNESBURG - SOUTH Africa’s economy was thrown a lifeline of a slow recovery this year after economic contraction for 2020 came in better than expected on both an annual and a quarterly basis.
Statistics SA (StatsSA) said yesterday that the economy experienced its biggest annual contraction in seven decades in 2020 in spite of quarterly growth in the three months ending in December.
StatsSA said that the gross domestic product (GDP) shrank 7 percent compared with 0.2 percent growth in 2019 amid the devastating impact of Covid-19 pandemic.
The decline in the GDP was primarily led by a fall in manufacturing, trade, catering and accommodation; and transport, storage and communication.
This was the most significant economic downturn in 75 years, but was not unexpected, following months of economic slowdown because of the lockdown restrictions.
“If we explore the historical data, this is the biggest annual fall in economic activity the country has seen since at least 1946,” StatsSA said.
“The second-biggest fall was recorded in 1992 when the economy contracted by 2.1 percent."
However, the GDP slide was better than previously forecast as the South African Reserve Bank expected a contraction of 7.1 percent, while the National Treasury had forecast 7.2 percent.
Anchor Capital investment analyst Casey Delport said the pandemic had exacerbated already existing structural weakness. “While the latest Covid19 restrictions have since eased, the risk of a resurgence in infections and the reimposition of tighter restrictions remain, especially as South Africa continues to lag wealthier developed nations in launching its immunisation campaign,” Delport said.
The government has pinned its hope of a recovery on the Covid-19 vaccine programme already being rolled out across the country.
Investec’s Lara Hodes said that the vaccine programme was key to any recovery forecast in the medium term.
“The hastened roll out of the Covid-19 vaccination programme, coupled with the implementation of the key reforms are vital to place South Africa on a path to sustainable growth,” Hodes said.
However, GDP started experiencing a rebound in the fourth quarter of 2020 and grew 1.5 percent, led by expansion in manufacturing, construction and trade. The manufacturing industry increased 21.1 percent in the fourth quarter, as nine of the 10 manufacturing divisions reported positive growth rates in the period.
Level 1 lockdown restrictions were in place for the majority of the fourth quarter, allowing most sectors of the economy to operate subject to strict health protocols.
Mining and finance, real estate and business services were the two industries that recorded a decline in economic activity.
North West Business School Professor Raymond Parsons said high frequency data suggested a strong recovery of up to 3 percent was under way this year. “Both the positive global and domestic economic trends therefore predicate an overall ‘rebound’ in the South African economy this year, albeit off a low base,” Parsons said.
“However, we need to acknowledge there is still a long way to go to restore national output and employment to their pre-pandemic levels.”